A key year, a key decade, and how Luxembourg can help

31.01.2012 (All day)

“There is no doubt that Luxembourg could add value to our growth by bringing its specialised expertise and we are committed to providing them with the gateway to opportunities in this region.” With these words Mr Abdulla Mohammed Al Awar, CEO of the DIFC Authority, closed his welcoming speech to guests at a seminar in Dubai, jointly organised by LFF and the DIFC Authority.

Mr Al Awar predicted that the GCC would be one of the major growth regions in the decades to come, citing high growth figures for the non-oil sector in the GCC region (7.2% YoY from 2000-08) and non-oil GDP growth in the UAE predicted to come in at 3.25% for 2011. This reflects growth in tourism, logistics and trade. He went on to say that the DIFC would play a major role by expanding the range of financial services and products available to firms and that Luxembourg could add value to this growth by contributing its expertise.

Speaking for Luxembourg, Minister of Finance Luc Frieden defended the logic and the future of a single European currency. “Europe offers huge opportunities for development” he pointed out, citing a market of 500m people and a single trading currency in 17 countries. “I do not think that the Euro is a project of the past … but we need a project where fiscal discipline is guaranteed”. In this context he pointed to Luxembourg’s AAA rating, adding that Luxembourg is not just a financial centre but that its products and services support a diversified and international industrial base.

SMEs must create the jobs of the future

Dr Nasser Saidi, Chief Economist at the DIFC, predicted that the GCC would become the driver for regional economic integration and that this was necessary to create jobs for a rapidly rising population. He identified four trends:

a shift of banking relationships towards the East;

“the coming of the “Redback”: the DIFC has just organised a 35bn RMB currency swap;

the need to develop local currency financial markets to service SMEs (“Luxembourg can help here”). This sector, he said, was vital to the creation of future jobs, however, only 20% of SMEs have a banking relationship, making it difficult to expand;

new actors to service: local companies going multinational, new net wealth increasingly generated in the Emerging markets, SWFs being asked to play a new, more domestic role.

The vision of a single GCC currency

Dr Saidi echoed Minister Frieden’s support for single currencies as a driver of trade, adding that there are lessons to be learnt from European monetary union but that the GCC did not face some of the challenges that beset the EU. “In Europe, the single currency was a political vision” he continued, “It required structural changes, but the criteria for convergence agreed at Maastrich were only partial: there was no convergence in the transferability of pensions or tax rules”.

The GCC has a different starting point:

its members have the financial resources to avoid insolvency crises;

currencies have long been linked to the USD (or a $ heavy basket like Kuwait);

labour mobility already exists: it is provided by foreign workers;

The GCC does not have substantial entitlement programmes and those that do exist only apply to nationals, who are typically few in number (eg half a million). “You could have monetary union without fiscal union”, he concluded, adding that there were advantages to such a course: as capital exporters, it would enable GCC countries to invest externally in their own currency; companies would issue bonds in the local currency for use within the region and it could become an international reserve currency. All of this would enable the GCC to control the value of its own currency.

In addition to the keynote speeches, two well-attended round table discussions tackled the ever-urgent topics of financial sector regulation and the future of asset management. However, one of the messages of the day was that the opportunities for cooperation between Luxembourg and the DIFC look set to expand in the future. ER